The Industry Shake Out

Adrian J Cotterill, Editor-in-Chief

Some people in the industry are calling what’s happening at the moment a period of consolidation** whereas to our mind this is all more of an aggressive industry shake-out where only the bold, well-financed, sensible business model and good cash flow businesses will end up surviving.

Let’s start with the positives. The last couple of weeks has seen STRATACACHE announce a USD 25 million Technology Acquisition Fund, EnQii raise USD 18 million with Amadeus and Wellington, two of the largest technology investors in Europe and PIXMAN Nomadic Media raise USD 7 million.

Bottom line, if you have a good management team, a sensible business model and you can explain your offering, folks with money (VC’s, HNI’s etc.) see enough (revenue) opportunity in our industry sector to invest not insignificant sums of money.

If they (the ‘investors’) didn’t see the potential growth in the industry sector they would not invest full stop.

Planar Coolsign is up for sale and the owners want USD 20 million for it – a 3 times earnings multiple.

Since Coolsign’s acquisition by Planar (via Clarity), Coolsign has generated USD 9.3 million in revenue . It expects to generate USD 6.4 million in revenue for FY2008 of which 79% is comprised of software and 19% is networked digital displays; content services accounts for less than 5% of revenue.

2008 gross margin forecast is 67%.

With a GOOD team of 30 employees including 14 in software development, 11 in sales and marketing and 6 in management, marketing support and creative services, even these folks can’t run into a profit AND those revenues are not bad for a signage company at all.

We are not sure if Coolsign being up for sale is a good or a bad indicator for the industry, screen hardware companies rarely ‘get’ digital signage and despite what it looks like on the surface, a screen hardware manufacturer owning or having a software arm or element is in actual fact rarely a good fit.

Planar definitely overpaid for Clarity / Coolsign when it paid USD 46 million in cash and Planar stock back in July 2006 but it is possibly being sold independently for what it is actually worth now.

We don’t believe that the likes of STRATACACHE or EnQii (i.e. folks with money) would in any way be interested in Coolsign but we do know of a couple of other interested parties and it will probably end up to a good home.

Another company that simply does not get digital signage is 3M. A fantastic company with a fantastic brand and great corporate presence has catastrophically failed to make any impact on the industry. 3M are probably likely to be the next large business to dispose of an asset that they don’t know what to do with / don’t want (delete as applicable).

There have been a couple of recent failures – some public and some not (well not yet at least). With the latter, hawks are circulating waiting for bankruptcy before moving in on assets and key employees – in fact we know of some key US employees in at least one well known signage vendor (and no it’s not BroadSign or Scala) already with CVs in the post.

BroadSign is surely a company waiting to implode. It’s not just the recent Petters Group Worlwide fraud investigations – though when people look back on this whole sorry episode it may be seen as “the straw that broke the camel’s back”. BroadSign’s arrogance will undoubtedly mean it loses its biggest customers by the end of the year – what then it’s revenue streams from its SaaS model?

The whole SaaS model is incredibly interesting to us, not least because of our own work with Web 2.0 solutions (and our belief that worldwide ‘why buy when you can rent’ is in most cases still the best option) but because those folks who have made it (SaaS) work are the small players like Remote Media with its Signagelve offering. They have made it work financially because they have kept their costs down and not overnight become a ‘bloated’ corporate with all the inherent overheads.

They can therefore offer a powerful, simple to use, robust offering at a low cost. You don’t get Harrods as a customer without doing something right!

Cisco too deserves some criticism. When they came to market with their DMS offering we thought they would leverage their obviously impressive world wide Value Added Reseller (VAR) channel and make a big positive impact on the industry. Not so unfortunately, either the VARs are not interested or Cisco’s DMS New Business Development group have failed to talk to the right people – we think it’s more of the latter and their skunkworks style attitude inside Cisco has meant that any time a business deal is on the table, all 12 of the team have had to go to work on it!

Cisco is a smart company with a good product, albeit expensive of course but they have a lot of work to do to get their DMS solution used as anything other than Enterprise TV in the Corporate world or sold cheaply to their education / university customers.

For those solid companies with a good business model there are lots of deals on the table, the US retail sector is actually quite buoyant from a signage point of view.

There are even most probably a couple of deals to mop up – Planar for example has a big one that it was just about to close but which may / may now not go through because of their ‘for sale’ status.

**Consolidation we feel is more defined as “When two corporations combine, creating a third” or described as a “Business combination of two or more entities that occurs when the entities transfer all of their net assets to a new entity” but what we are going to see is companies totally disappearing.

3 Responses to “The Industry Shake Out”

  1. Jeff Collard Says:

    Two points that I would like to clarify for your readers:

    Planar did not spend $46M to purchase CoolSign, they purchased Clarity in 2006 who one year earlier had purchased CoolSign. I don’t think that the price of the CoolSign acquisition was published but I believe that the current asking price is a significant increase in value (well beyond market growth in the past 3 years).

    There are several companies in this space with long histories and strong balance sheets. One should not assume that VC funding is a prerequisite for success in the digital signage industry.

  2. Adrian J Cotterill Says:

    Jeff, thanks for the clarification, you are correct, our mistake in using Clarity and Coolsign as one and the same.

    When Planar bought Clarity/ Coolsign – the USD 46 million was mostly for Clarity’s
    display business AND only a portion could be directly attributable to the CoolSign line of business. When Clarity bought CoolSign from AdSpace we believe that it was valued slightly north of USD 46 million.

    We will amend the post later to correct this.

  3. Terry Scannell Says:

    I agree with Jeff’s post here. From my understanding the founder of Clarity (an Oregon business person who help found InFocus) was smart enough to buy Coolsigns after the venture capital people who originally funded it threw up their hands. The venture people had invested tens of millions. Rumors on the street at the time of the Clarity purchase of Coolsigns were that Clarity paid only slightly above $1.0 million for Coolsigns ( a great price if true).

    Planar another Oregon LCD firm bought Clarity as Jeff points out. Planar has invested substantially in Coolsigns and made some great improvements to it. But the $46.0 million was not paid just for Coolsigns. No one will really know what value Planar put on that portion of the Clarity acquisition.

    Planar’s major strategic blunder was when it bought a high end home theater company right at the top of the housing bubble for around $40.0 million in cash. That acquisition has not gone well to say least the least and this has forced Planar to start selling of chunks of itself. Last quarter or so it sold off its medical display business. Now as reported they are trying to sell Coolsigns.

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